UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 9, 2017
COLONY NORTHSTAR, INC.
(Exact name of registrant as specified in its charter)
Maryland | 001-37980 | 46-4591526 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
515 S. Flower Street, 44th Floor Los Angeles, CA | 90071 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (310) 282-8820
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.01. Completion of Acquisition or Disposition of Assets.
On March 9, 2017, Colony NorthStar, Inc. (the “Company”) completed the previously announced sale of its manufactured housing portfolio (the “MH Portfolio”) consisting of approximately 33,010 pads in 135 communities located in 13 states to BSREP II MH C LLC, a Delaware limited liability company and an affiliate of a real estate fund managed by Brookfield Asset Management Inc. The purchase price received for the MH Portfolio was approximately $2.0 billion, which resulted in the Company receiving approximately $664.0 million in net proceeds, as adjusted for prorations and other reimbursements, for its interest in the MH Portfolio.
Item 9.01. Financial Statements and Exhibits.
(b) Pro forma financial information
The pro forma financial information of the Company as adjusted to give effect to the disposition of the MH Portfolio and as required by this Item 9.01 of Current Report on Form 8-K is presented in Note 4.A and Note 5.D in the unaudited pro forma condensed consolidated financial statements of the Company for the year ended December 31, 2016 (the "pro forma financial statements"), filed as Exhibit 99.1 to this Form 8-K and incorporated herein by reference.
In addition to the disposition of the MH Portfolio, the pro forma financial statements also give effect to (i) the business combination between the Company (as successor to NorthStar Asset Management Group Inc.), Colony Capital, Inc. and NorthStar Realty Finance Corp. ("NRF"), which was completed on January 10, 2017, (ii) the cancellation of the NRF management agreement and (iii) the completion of other NRF sales initiatives.
(d) Exhibits
Exhibit No. | Description | |
99.1 | Unaudited Pro Forma Condensed Consolidated Financial Statements of Colony NorthStar, Inc. as of and for the year ended December 31, 2016 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: March 15, 2017 | COLONY NORTHSTAR, INC. | |||||
By: | /s/ Darren J. Tangen | |||||
Darren J. Tangen Chief Financial Officer and Treasurer | ||||||
EXHIBIT INDEX
Exhibit No. | Description | |
99.1 | Unaudited Pro Forma Condensed Consolidated Financial Statements of Colony NorthStar, Inc. as of and for the year ended December 31, 2016 | |
EXHIBIT 99.1
COLONY NORTHSTAR, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Index | Page | |
1
COLONY NORTHSTAR, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On January 10, 2017 (“Closing Date”), through a series of internal reorganization and merger transactions, Colony Capital, Inc. (“Colony”), NorthStar Asset Management Group Inc. (“NSAM”) and NorthStar Realty Finance Corp. (“NRF”) combined in an all-stock merger transaction (the "Mergers") to form Colony NorthStar, Inc. ("Colony NorthStar" or the “Company”), the publicly-traded company of the combined organization. On the Closing Date, NSAM redomesticated to Maryland and elected to be treated as a real estate investment trust (“REIT”), followed by the merger of NRF and Colony with and into the redomesticated NSAM, which was renamed Colony NorthStar.
On March 9, 2017, the Company completed the previously announced sale of its manufactured housing portfolio (the “MH Portfolio”).
The following unaudited pro forma condensed consolidated financial statements and notes thereto are based on the audited historical financial condition and results of operations of Colony, NSAM and NRF, and give effect to: (i) completion of the Mergers; (ii) cancellation of the NRF management agreement; and (iii) completion of the disposition of the MH Portfolio and other sales initiatives by NRF (collectively, “NRF Sales Initiatives”).
The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations of the companies had the Mergers and related transactions and NRF Sales Initiatives, including the disposition of the MH Portfolio, been completed as of the beginning of the earliest period presented, nor indicative of future results of operations or future financial position of the combined company. The unaudited pro forma condensed consolidated financial statements do not reflect the costs of any integration activities or full benefits that may result from realization of future cost savings from operating efficiencies, revenue or other incremental synergies expected to result from the Mergers.
The unaudited pro forma condensed consolidated financial statements should be read in connection with the historical consolidated financial statements and notes thereto of NSAM, included as Item 8 in Colony NorthStar’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “Form 10-K”), and of Colony and NRF, included as Exhibits 99.11 and 99.12, respectively, in the Form 10-K. The unaudited pro forma condensed consolidated financial statements reflect a preliminary purchase price allocation and management’s best estimates based on available information and may be revised as additional information becomes available and as additional analyses are performed upon finalization of acquisition accounting no later than one year following the Closing Date of the Mergers.
2
COLONY NORTHSTAR, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2016
(In thousands)
Historical (Note 2) | Pro Forma Adjustments (Note 4) | Colony NorthStar Pro Forma Consolidated | ||||||||||||||||||||||||||
Colony | NSAM | NRF | NRF Sales Initiatives(A) | Merger Adjustments(B) | Fair Value Adjustment(C) | |||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 376,005 | $ | 131,666 | $ | 1,104,950 | $ | 1,019,023 | $ | (921,111 | ) | (1) | $ | — | $ | 1,710,533 | ||||||||||||
Restricted cash | 121,881 | 22,477 | 166,394 | (1,280 | ) | — | — | 309,472 | ||||||||||||||||||||
Operating real estate, net | 3,243,631 | — | 7,397,231 | — | — | 1,754,233 | 12,395,095 | |||||||||||||||||||||
Real estate debt investments, net | 3,432,992 | — | 296,544 | — | — | 3,728 | 3,733,264 | |||||||||||||||||||||
Real estate debt investments, held for sale | 29,353 | — | 34,000 | — | — | — | 63,353 | |||||||||||||||||||||
Investments in private equity funds, at fair value | 1,657 | — | 416,919 | — | — | — | 418,576 | |||||||||||||||||||||
Investments in unconsolidated ventures | 1,051,338 | 55,836 | 167,778 | — | — | 67,191 | 1,342,143 | |||||||||||||||||||||
Real estate securities, available for sale | 23,446 | — | 445,363 | — | — | — | 468,809 | |||||||||||||||||||||
Securities, at fair value | — | 44,210 | — | — | (41,113 | ) | (2) | (32 | ) | 3,065 | ||||||||||||||||||
Due from affiliates | 9,971 | 53,307 | 1,058 | — | (874 | ) | (3) | (18,721 | ) | 44,741 | ||||||||||||||||||
Goodwill | 680,127 | 243,328 | 43,432 | — | — | 1,124,055 | 2,090,942 | |||||||||||||||||||||
Intangible assets, net | 278,741 | 201,631 | 289,568 | — | (1,930,000 | ) | (4) | 2,682,973 | 1,522,913 | |||||||||||||||||||
Assets of properties held for sale | 261,238 | — | 1,668,305 | (2,046,424 | ) | — | 412,119 | 295,238 | ||||||||||||||||||||
Other assets | 250,612 | 98,172 | 185,347 | (1,207 | ) | (7,437 | ) | (5) | (25,038 | ) | 500,449 | |||||||||||||||||
Total assets | $ | 9,760,992 | $ | 850,627 | $ | 12,216,889 | $ | (1,029,888 | ) | $ | (2,900,535 | ) | $ | 6,000,508 | $ | 24,898,593 | ||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Mortgage and other notes payable | $ | 2,026,585 | $ | — | $ | 6,290,200 | $ | (29,292 | ) | $ | — | $ | (71,723 | ) | $ | 8,215,770 | ||||||||||||
Credit facilities and term borrowings | 492,953 | 468,425 | 421,584 | — | (890,009 | ) | (6) | — | 492,953 | |||||||||||||||||||
Convertible senior notes | 592,826 | — | 27,410 | — | — | 4,632 | 624,868 | |||||||||||||||||||||
Securitization bonds payable | 494,496 | — | 256,544 | — | — | — | 751,040 | |||||||||||||||||||||
Junior subordinated notes, at fair value | — | — | 194,980 | — | — | — | 194,980 | |||||||||||||||||||||
Accounts payable and other liabilities | 280,419 | 122,012 | 166,054 | 17,920 | 62,684 | (7) | 298,636 | 947,725 | ||||||||||||||||||||
Due to affiliates—contingent consideration | 41,250 | — | — | — | — | — | 41,250 | |||||||||||||||||||||
Due to related parties | — | — | 874 | — | (874 | ) | (3) | — | — | |||||||||||||||||||
Intangible liabilities, net | 21,062 | — | 110,661 | — | (1,930,000 | ) | (4) | 1,939,219 | 140,942 | |||||||||||||||||||
Dividends payable | 65,972 | — | — | — | — | 228,000 | 293,972 | |||||||||||||||||||||
Liabilities of properties held for sale | 123,054 | — | 1,291,275 | (1,280,896 | ) | — | 3,941 | 137,374 | ||||||||||||||||||||
Derivative liabilities, at fair value | 5,448 | — | 123,472 | — | — | 23,933 | 152,853 | |||||||||||||||||||||
Total liabilities | 4,144,065 | 590,437 | 8,883,054 | (1,292,268 | ) | (2,758,199 | ) | 2,426,638 | 11,993,727 | |||||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||||||
Redeemable noncontrolling interests | — | 74,525 | — | — | — | 4,318 | 78,843 | |||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||
Performance common stock | — | 52 | — | — | (52 | ) | (8) | — | — | |||||||||||||||||||
Preferred stock | 606,950 | — | 939,118 | — | — | 58,343 | 1,604,411 | |||||||||||||||||||||
Common stock | 1,140 | 1,884 | 1,806 | — | 794 | (9) | — | 5,624 | ||||||||||||||||||||
Additional paid-in capital | 2,443,882 | 250,997 | 5,120,061 | (12,257 | ) | (3,156,990 | ) | (10) | 3,433,557 | 8,079,250 | ||||||||||||||||||
Accumulated other comprehensive (loss) income | (32,109 | ) | (280 | ) | (77,523 | ) | — | 77,803 | (10) | — | (32,109 | ) | ||||||||||||||||
Retained earnings (accumulated deficit) | (246,064 | ) | (68,541 | ) | (2,901,966 | ) | (19,141 | ) | 2,888,217 | (11) | — | (347,495 | ) | |||||||||||||||
Total stockholders’ equity | 2,773,799 | 184,112 | 3,081,496 | (31,398 | ) | (190,228 | ) | 3,491,900 | 9,309,681 | |||||||||||||||||||
Noncontrolling interests—investments | 2,453,938 | — | 220,754 | 293,778 | — | 77,652 | 3,046,122 | |||||||||||||||||||||
Noncontrolling interests—operating partnership | 389,190 | 1,553 | 31,585 | — | 47,892 | (10) | — | 470,220 | ||||||||||||||||||||
Total equity | 5,616,927 | 185,665 | 3,333,835 | 262,380 | (142,336 | ) | 3,569,552 | 12,826,023 | ||||||||||||||||||||
Total liabilities, redeemable noncontrolling interests and equity | $ | 9,760,992 | $ | 850,627 | $ | 12,216,889 | $ | (1,029,888 | ) | $ | (2,900,535 | ) | $ | 6,000,508 | $ | 24,898,593 | ||||||||||||
Refer to accompanying notes to unaudited pro forma condensed consolidated financial statements.
3
COLONY NORTHSTAR, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 2016
(In thousands, except per share data)
Historical (Note 2) | Pro Forma Adjustments (Note 5) | Colony NorthStar Pro Forma Consolidated | |||||||||||||||||||||||||
Colony | NSAM | NRF | NRF Sales Initiatives(D) | Merger Adjustments(E) | Fair Value Adjustment(F) | ||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||
Rental and tenant reimbursement income | $ | 342,061 | $ | — | $ | 678,909 | $ | (328,360 | ) | $ | — | $ | 27,361 | (7) | $ | 719,971 | |||||||||||
Hotel operating income | 29,021 | — | 826,147 | — | — | — | 855,168 | ||||||||||||||||||||
Resident fee income | — | — | 293,006 | — | — | — | 293,006 | ||||||||||||||||||||
Interest income | 385,851 | — | 144,208 | (15,109 | ) | 2,279 | (4) | — | 517,229 | ||||||||||||||||||
Fee income | 67,731 | 366,615 | — | — | (186,765 | ) | (1) | — | 247,581 | ||||||||||||||||||
Selling commission and dealer manager fees, related parties | — | 22,803 | — | — | — | — | 22,803 | ||||||||||||||||||||
Other income | 14,193 | 9,124 | 19,727 | (7,655 | ) | 27,519 | (1) | — | 62,908 | ||||||||||||||||||
Total revenues | 838,857 | 398,542 | 1,961,997 | (351,124 | ) | (156,967 | ) | 27,361 | 2,718,666 | ||||||||||||||||||
Expenses | |||||||||||||||||||||||||||
Management fee | — | — | 186,765 | — | (186,765 | ) | (1) | — | — | ||||||||||||||||||
Interest expense | 170,083 | 25,914 | 474,884 | (96,337 | ) | (53,157 | ) | (2) | (4,049 | ) | (8) | 517,338 | |||||||||||||||
Property operating expenses | 118,461 | — | 935,702 | (116,267 | ) | — | 2,007 | (9) | 939,903 | ||||||||||||||||||
Commission expense | — | 21,654 | — | — | — | — | 21,654 | ||||||||||||||||||||
Other expense—investment and servicing expenses | 23,666 | 7,774 | 24,444 | (1,543 | ) | — | — | 54,341 | |||||||||||||||||||
Transaction costs | 40,605 | 47,440 | 21,475 | (205 | ) | (73,291 | ) | (1) | — | 36,024 | |||||||||||||||||
Impairment losses | 11,717 | — | 79,869 | — | — | — | 91,586 | ||||||||||||||||||||
Provision for loan losses | 35,005 | — | 10,594 | (3,128 | ) | — | — | 42,471 | |||||||||||||||||||
General and administrative expenses | |||||||||||||||||||||||||||
Compensation expense | 111,838 | 159,820 | 32,508 | — | 55,759 | (1) | — | 359,925 | |||||||||||||||||||
Other general and administrative expenses | 51,699 | 41,404 | 18,539 | — | 5,583 | (1) | — | 117,225 | |||||||||||||||||||
Total general and administrative expenses | 163,537 | 201,224 | 51,047 | — | 61,342 | — | 477,150 | ||||||||||||||||||||
Depreciation and amortization | 171,682 | 10,020 | 337,935 | (33,739 | ) | — | 59,253 | (10) | 545,151 | ||||||||||||||||||
Total expenses | 734,756 | 314,026 | 2,122,715 | (251,219 | ) | (251,871 | ) | 57,211 | 2,725,618 | ||||||||||||||||||
Other income (loss) | |||||||||||||||||||||||||||
Unrealized gain (loss) on investments and other | — | (4,492 | ) | (183,570 | ) | — | 5,102 | (3) | — | (182,960 | ) | ||||||||||||||||
Realized gain (loss) on investments and other | 73,616 | (16,226 | ) | 10,689 | (47,977 | ) | — | — | 20,102 | ||||||||||||||||||
Other gain (loss), net | 18,416 | — | — | — | — | — | 18,416 | ||||||||||||||||||||
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense) | 196,133 | 63,798 | (333,599 | ) | (147,882 | ) | 100,006 | (29,850 | ) | (151,394 | ) | ||||||||||||||||
Equity in (loss) income of unconsolidated ventures | 99,375 | (5,782 | ) | 124,718 | (10,799 | ) | (4,487 | ) | (4) | — | 203,025 | ||||||||||||||||
Income tax benefit (expense) | (4,782 | ) | (11,022 | ) | (13,835 | ) | 2,971 | 927 | (5) | — | (25,741 | ) | |||||||||||||||
Income (loss) from continuing operations | 290,726 | 46,994 | (222,716 | ) | (155,710 | ) | 96,446 | (29,850 | ) | 25,890 | |||||||||||||||||
Income (loss) from continuing operations attributable to: | |||||||||||||||||||||||||||
Redeemable noncontrolling interests | — | 4,271 | — | — | — | — | 4,271 | ||||||||||||||||||||
Noncontrolling interests—investments | 163,084 | — | (4,522 | ) | (17,924 | ) | — | 7,287 | (11) | 147,925 | |||||||||||||||||
Noncontrolling interests—operating partnership | 12,324 | 442 | (2,904 | ) | — | (24,756 | ) | (6) | — | (14,894 | ) | ||||||||||||||||
Preferred stock dividends | 48,159 | — | 84,238 | — | — | — | 132,397 | ||||||||||||||||||||
Net income (loss) from continuing operations attributable to common stockholders | $ | 67,159 | $ | 42,281 | $ | (299,528 | ) | $ | (137,786 | ) | $ | 121,202 | $ | (37,137 | ) | $ | (243,809 | ) | |||||||||
Earnings (loss) per share (Note 6): | |||||||||||||||||||||||||||
Basic | $ | 0.58 | $ | 0.21 | $ | (1.66 | ) | $ | (0.46 | ) | |||||||||||||||||
Diluted | $ | 0.58 | $ | 0.21 | $ | (1.66 | ) | $ | (0.46 | ) | |||||||||||||||||
Weighted average number of shares (Note 6): | |||||||||||||||||||||||||||
Basic | 112,235 | 183,327 | 180,590 | 549,458 | |||||||||||||||||||||||
Diluted | 112,235 | 185,112 | 182,449 | 549,458 | |||||||||||||||||||||||
Refer to accompanying notes to unaudited pro forma condensed consolidated financial statements.
4
COLONY NORTHSTAR, INC.
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of the Mergers and NRF Sales Initiatives
Mergers
As of the Closing Date of the Mergers, the former stockholders of Colony, NSAM and NRF own, or have the right to own, approximately 33.25%, 32.85% and 33.90%, respectively, of Colony NorthStar, on a fully diluted basis, excluding the effect of certain equity-based awards issued in 2017 in connection with the Mergers.
Pursuant to terms and conditions of the merger agreement (as amended, the “merger agreement”), NSAM common stock was first converted into Colony NorthStar common stock through NSAM’s merger with and into Colony NorthStar, followed by the acquisition of 100% of the common stock and preferred stock of Colony and NRF through the conversion of all such outstanding shares, based on pre-determined exchange ratios, into shares of Colony NorthStar.
Specifically, each share of NSAM common stock issued and outstanding immediately prior to the effective time of the Mergers was canceled and converted into one share of Colony NorthStar class A common stock. Each share of NSAM performance stock became vested and converted into one share of Colony NorthStar class A common stock or forfeited. Each share of common stock of Colony and NRF issued and outstanding immediately prior to the effective time of the Mergers was canceled and converted into common stock of Colony NorthStar based on the exchange ratios of 1.4663 shares of Colony NorthStar class A and class B common stock for each share of Colony’s class A and class B common stock, respectively, and 1.0996 shares of Colony NorthStar Class A common stock for each share of NRF common stock. Each share of each series of the preferred stock of Colony and of NRF issued and outstanding immediately prior to the effective time of the Mergers was canceled and converted into one share of a corresponding series of Colony NorthStar preferred stock with substantially identical preferences, conversion and other rights, voting powers, restrictions, limitations as to dividend, qualification and terms and conditions of redemption. Concurrently, Colony’s operating subsidiary, Colony Capital Operating Company, LLC (“operating partnership,” “OP” or “Colony NorthStar OP”), which survives the Merger and will continue as Colony NorthStar’s operating partnership, issued additional partnership units to equal the number of OP units outstanding on the day prior to the closing of the Mergers multiplied by the exchange ratio of 1.4663.
NRF Sales Initiatives
In connection with its strategic initiatives, NRF has executed a series of sales initiatives (the "NRF Sales Initiatives") which included: (i) sales of certain real estate assets; (ii) sales of certain limited partnership interests in real estate private equity funds; and (iii) sales and/or accelerated repayments of certain commercial real estate (“CRE”), debt and securities investments. Under the merger agreement, NRF was required to use reasonable best efforts to continue certain agreed upon sales initiatives.
On March 9, 2017, the Company completed the sale of its MH Portfolio consisting of approximately 33,010 pads in 135 communities located in 13 states, which was contemplated as one of the NRF Sales Initiatives. The purchase price received for the MH Portfolio was approximately $2.0 billion, which resulted in the Company receiving approximately $664.0 million in net proceeds, as adjusted for prorations and other reimbursements, for its interest in the MH Portfolio.
Note 2. Basis of Presentation
The unaudited pro forma condensed consolidated financial statements relating to the Mergers are prepared as of and for the year ended December 31, 2016, in accordance with Article 11 of Regulation S-X and, in the opinion of management, reflect all necessary adjustments. Accordingly, the audited historical financial information of Colony, NSAM and NRF has been adjusted to give pro forma effect to all significant events that are: (i) directly attributable to the Mergers and related transactions and NRF Sales Initiatives, including disposition of the MH Portfolio; (ii) factually supportable; and (iii) with respect to the unaudited pro forma condensed consolidated statement of operations, expected to have a continuing impact on the results of the combined company.
The unaudited pro forma condensed consolidated balance sheet as of December 31, 2016 is presented as if the Mergers and related transactions and NRF Sales Initiatives had been effective on December 31, 2016. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016 is presented as if the Mergers and related transactions and NRF Sales Initiatives had been effective on January 1, 2016, the beginning of the earliest period presented.
5
Certain amounts in the audited historical consolidated financial statements of Colony, NSAM and NRF have been reclassified to conform to the presentation of the combined company in the unaudited pro forma condensed consolidated financial statements.
Significant transactions between NSAM, NRF and Colony as of and for the year ended December 31, 2016 have been eliminated in the unaudited pro forma condensed consolidated financial statements as if these companies were consolidated affiliates during the year.
The Mergers are accounted for under the acquisition method for business combinations as a reverse acquisition pursuant to Accounting Standards Codification Topic 805, Business Combinations. In the Mergers, NSAM is the legal acquirer while Colony is considered to be the accounting acquirer for financial reporting purposes. The consideration transferred established a new accounting basis for the assets acquired, liabilities assumed and noncontrolling interests of NSAM and NRF, measured at their respective fair values on the Closing Date. Accordingly, the unaudited pro forma condensed consolidated financial statements include adjustments to record the assets, liabilities and noncontrolling interests of NSAM and NRF at their estimated fair values. The excess of consideration transferred over fair value of net assets acquired represents goodwill. Adjustments to fair value and preliminary allocation of merger consideration may change the amount of goodwill and may impact depreciation, amortization and accretion based on revised fair value of assets acquired and liabilities assumed. The fair values and allocation of merger consideration will be finalized as soon as practicable within the measurement period of no later than one year following the Closing Date of the Mergers. The final acquisition accounting may vary significantly from that reflected in the unaudited pro forma condensed consolidated financial statements.
Note 3. Merger Consideration
As the Mergers are accounted for as a reverse acquisition, the fair value of the consideration transferred is measured based upon: (i) the number of shares of common stock that Colony, as the accounting acquirer, would theoretically have issued to the stockholders of NSAM and NRF to achieve the same ratio of ownership in Colony NorthStar upon completion of the Mergers; and (ii) applying the Colony class A common stock price on the Closing Date.
As a result, the implied shares of Colony common stock issued in consideration was computed based on the number of outstanding shares of NSAM and NRF common stock prior to the Mergers divided by the exchange ratios of 1.4663 and 1.3335, respectively.
Substantially all outstanding NSAM and NRF equity awards vested upon consummation of the Mergers. As Colony NorthStar issued its common stock upon consummation of the Mergers and settlement of these equity awards relate to pre-combination services, these equity awards are included in the outstanding shares of NSAM and NRF common stock used to determine the merger consideration.
Any NSAM and NRF equity awards that did not vest by their terms upon consummation of the Mergers were assumed by Colony NorthStar through conversion into comparable Colony NorthStar equity awards with substantially the same terms. The portion of the replacement awards attributable to pre-combination services forms part of merger consideration while the portion that requires post-combination services will be recognized as compensation expense prospectively by Colony NorthStar.
The merger consideration is calculated as follows (in thousands, except exchange ratios and per share amounts):
NSAM | NRF | Total | ||||||||||
Outstanding shares of common stock prior to the Mergers | 190,739 | 183,146 | ||||||||||
Replacement equity awards attributable to pre-combination services(i) | 300 | 150 | ||||||||||
191,039 | 183,296 | |||||||||||
Exchange ratio(ii) | 1.4663 | 1.3335 | ||||||||||
Implied shares of Colony common stock issued in consideration | 130,286 | 137,455 | 267,741 | |||||||||
Price per share of Colony common stock(iii) | $ | 21.52 | $ | 21.52 | $ | 21.52 | ||||||
Fair value of implied shares of Colony common stock issued in consideration | $ | 2,803,755 | $ | 2,958,032 | $ | 5,761,787 | ||||||
Fair value of Colony NorthStar preferred stock issued(iv) | — | 997,461 | 997,461 | |||||||||
Fair value of NRF common stock owned by NSAM(v) | (41,113 | ) | — | (41,113 | ) | |||||||
Total merger consideration | $ | 2,762,642 | $ | 3,955,493 | $ | 6,718,135 | ||||||
6
_________________________
(i) | Represents the portion of non-employee restricted stock unit (“RSU”) awards that do not vest upon consummation of the Mergers and pertain to services rendered prior to the Mergers. |
(ii) | Represents (a) the exchange ratio of one Colony share for 1.4663 Colony NorthStar shares; and (b) the derived exchange ratio of one Colony share for 1.3335 NRF shares based on the exchange ratio of one NRF share for 1.0996 Colony NorthStar shares. |
(iii) | The pro forma merger consideration was determined based on the closing price of Colony common stock of $21.52 on January 10, 2017. |
(iv) | Fair value of Colony NorthStar preferred stock issued is estimated based on the shares of NRF preferred stock outstanding as of January 10, 2017 multiplied by the closing price (clean price) of the respective series of NRF preferred stock as of January 10, 2017, as follows (in thousands, except per share): |
Number of Shares Outstanding | Price Per Share | Fair Value | |||||||||
NRF Preferred Stock | |||||||||||
Series A 8.75% | 2,467 | $ | 25.28 | $ | 62,366 | ||||||
Series B 8.25% | 13,999 | 24.83 | 347,595 | ||||||||
Series C 8.875% | 5,000 | 25.46 | 127,300 | ||||||||
Series D 8.50% | 8,000 | 25.50 | 204,000 | ||||||||
Series E 8.75% | 10,000 | 25.62 | 256,200 | ||||||||
Fair value of Colony NorthStar preferred stock to be issued | $ | 997,461 | |||||||||
(v) | Represents the fair value of 2.7 million shares of NRF common stock that were owned by NSAM prior to the Mergers and canceled upon consummation of the Mergers. Refer to Note 4.B, Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet—Merger Adjustments, footnote 2. |
The following table presents a summary of the preliminary purchase price allocation of the merger consideration to the assets acquired, liabilities assumed and noncontrolling interests of NSAM and NRF based on their respective fair value as of the Closing Date, after adjusting for NRF Sales Initiatives. The consideration transferred is in excess of the estimated fair value of assets and liabilities for both NSAM and NRF, resulting in goodwill that is recognized as a fair value adjustment in the unaudited pro forma condensed consolidated balance sheet (in thousands):
NSAM | NRF | Total | ||||||||||
Merger consideration(i) | $ | 2,762,642 | $ | 3,955,493 | $ | 6,718,135 | ||||||
Preliminary allocation of merger consideration: | ||||||||||||
Assets acquired | 3,011,213 | 13,574,995 | 16,586,208 | |||||||||
Liabilities assumed | (1,040,836 | ) | (9,567,025 | ) | (10,607,861 | ) | ||||||
Redeemable noncontrolling interests | (78,843 | ) | — | (78,843 | ) | |||||||
Noncontrolling interests—investments | — | (592,184 | ) | (592,184 | ) | |||||||
Fair value of net assets acquired(ii) | 1,891,534 | 3,415,786 | 5,307,320 | |||||||||
Preliminary goodwill | $ | 871,108 | $ | 539,707 | $ | 1,410,815 | ||||||
__________________________
(i) | Refer to the table above, Total merger consideration. |
(ii) | Refer to fair value of net assets acquired in Note 4.C, Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet—Fair Value Adjustments. |
A final determination of the fair value and allocation of the merger consideration is in process as of the date of this Current Report on Form 8-K. The estimated fair value and preliminary allocation of the merger consideration may be subject to adjustments during the measurement period, not to exceed one year from the Closing Date, based upon new information obtained about facts and circumstances that existed as of the Closing Date.
Note 4. Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet
A. NRF Sales Initiatives
The following table presents a summary of the pro forma adjustments to the unaudited condensed consolidated balance sheet as of December 31, 2016 related to NRF Sales Initiatives. Such adjustments eliminate the assets and liabilities related to those assets sold or held for sale (in thousands):
Manufactured Housing(1) | Medical Office Building(2) | Net Lease(3) | Healthcare Joint Venture(4) | Total NRF Sales Initiatives | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents(5) | $ | 663,351 | $ | 3,072 | $ | 12,600 | $ | 340,000 | $ | 1,019,023 | ||||||||||
Restricted cash | — | — | (1,280 | ) | — | (1,280 | ) | |||||||||||||
Assets of properties held for sale(6) | (2,001,025 | ) | (14,699 | ) | (30,700 | ) | — | (2,046,424 | ) | |||||||||||
Other assets | (828 | ) | (320 | ) | (59 | ) | — | (1,207 | ) | |||||||||||
Total assets | $ | (1,338,502 | ) | $ | (11,947 | ) | $ | (19,439 | ) | $ | 340,000 | $ | (1,029,888 | ) | ||||||
Liabilities | ||||||||||||||||||||
Mortgage and other notes payable | $ | — | $ | (11,135 | ) | $ | (18,157 | ) | $ | — | $ | (29,292 | ) | |||||||
Accounts payable and other liabilities | (1,501 | ) | (248 | ) | (331 | ) | 20,000 | 17,920 | ||||||||||||
Liabilities of properties held for sale(6) | (1,280,829 | ) | (67 | ) | — | — | (1,280,896 | ) | ||||||||||||
Total liabilities | (1,282,330 | ) | (11,450 | ) | (18,488 | ) | 20,000 | (1,292,268 | ) | |||||||||||
Equity | ||||||||||||||||||||
Stockholders’ equity | (18,204 | ) | 14 | (951 | ) | (12,257 | ) | (31,398 | ) | |||||||||||
Noncontrolling interests—investments | (37,968 | ) | (511 | ) | — | 332,257 | 293,778 | |||||||||||||
Total equity | (56,172 | ) | (497 | ) | (951 | ) | 320,000 | 262,380 | ||||||||||||
Total liabilities and equity | $ | (1,338,502 | ) | $ | (11,947 | ) | $ | (19,439 | ) | $ | 340,000 | $ | (1,029,888 | ) | ||||||
__________________________________
(1) | On March 9, 2017, the Company completed the sale of the MH Portfolio for $2.0 billion, with $1.3 billion of related mortgage financing (recorded in liabilities of properties held for sale) assumed by the buyer as part of the transaction. |
(2) | Represents a medical office building held for sale at December 31, 2016, which was subsequently sold in January 2017. |
(3) | Represents a net lease property held for sale at December 31, 2016. |
(4) | In November 2016, NRF entered into an agreement to sell a noncontrolling interest in its healthcare portfolio for $350 million (including $20 million of pre-funded capital items). The sale was completed in January 2017. The amount in stockholders’ equity is the difference between the fair value of the noncontrolling interest and the sales price of $350 million less transaction costs. |
(5) | Proceeds from such sales are net of cash and cash equivalent balances as of December 31, 2016, as applicable. |
(6) | The following table presents the major classes of long-lived assets and liabilities classified as held for sale as of December 31, 2016 (in thousands): |
Assets | Liabilities | |||||||||||||||||||||||||||||||
Description | Operating Real Estate(i) | Intangible Assets(ii) | Other Assets(iii) | Total | Mortgage and Other Notes Payable | Intangible Liabilities | Other Liabilities(iv) | Total | ||||||||||||||||||||||||
MH Portfolio | $ | 1,845,929 | $ | 23,983 | $ | 131,113 | $ | 2,001,025 | $ | 1,255,991 | $ | — | $ | 24,838 | $ | 1,280,829 | ||||||||||||||||
Other | 44,472 | 927 | — | 45,399 | — | 67 | — | 67 | ||||||||||||||||||||||||
Total | $ | 1,890,401 | $ | 24,910 | $ | 131,113 | $ | 2,046,424 | $ | 1,255,991 | $ | 67 | $ | 24,838 | $ | 1,280,896 | ||||||||||||||||
___________________________________________
(i)Operating real estate comprises the following (in thousands):
Operating real estate - held-for-sale | MH Portfolio | Other | Total | |||||||||
Land and improvements | $ | 1,855,677 | $ | 17,169 | $ | 1,872,846 | ||||||
Buildings and improvements | 143,070 | 31,990 | 175,060 | |||||||||
Furniture, fixtures and equipment | 7,940 | — | 7,940 | |||||||||
Subtotal | 2,006,687 | 49,159 | 2,055,846 | |||||||||
Less: accumulated depreciation | (160,758 | ) | (4,687 | ) | (165,445 | ) | ||||||
Total | $ | 1,845,929 | $ | 44,472 | $ | 1,890,401 | ||||||
(ii)Represents the carrying value of in-place and above-market leases, net of accumulated amortization.
(iii)Includes cash and cash equivalents, restricted cash, accounts, notes and other receivables.
(iv)Includes accrued interest and taxes and accounts payable.
7
B. | Merger Adjustments |
(1) | The following table presents a summary of merger-related adjustments in connection with the pay down of NSAM and NRF corporate borrowings (in thousands): |
Adjustments to cash and cash equivalents related to the pay down of the corporate borrowings: | NSAM | NRF | Total | |||||||||
Principal pay down of corporate borrowings (refer to footnote 6) | $ | (496,250 | ) | $ | (425,000 | ) | $ | (921,250 | ) | |||
Prepaid interest (refer to footnote 5) | — | 4,274 | 4,274 | |||||||||
Interest payable (refer to footnote 7) | (4,135 | ) | — | (4,135 | ) | |||||||
Total | $ | (500,385 | ) | $ | (420,726 | ) | $ | (921,111 | ) | |||
(2) | Represents elimination of the carrying value of NSAM’s ownership of 2.7 million shares of NRF common stock. Refer to footnotes 9 and 10. |
(3) | Represents elimination of receivables and payables between NSAM and NRF, respectively. |
(4) | Represents elimination of the fair value of the management contract value between NSAM and NRF, which ceased to exist upon completion of the Mergers. Refer to Note 4.C, Fair Value Adjustments, footnote 4, for further information. |
(5) | The following table presents a summary of merger-related adjustments related to other assets (in thousands): |
Adjustments related to other assets: | Colony | NSAM | NRF | Total | ||||||||||||
Deferred financing costs(i) | $ | — | $ | — | $ | (515 | ) | $ | (515 | ) | ||||||
Prepaid interest(ii) | — | — | (4,274 | ) | (4,274 | ) | ||||||||||
Accounts receivable from NSAM / NRF(iii) | (2,648 | ) | — | — | (2,648 | ) | ||||||||||
Total | $ | (2,648 | ) | $ | — | $ | (4,789 | ) | $ | (7,437 | ) | |||||
___________________________________________
(i) | Represents an adjustment to eliminate deferred financing costs related to NRF’s corporate revolving credit facility, which was paid off and terminated in connection with the Mergers. |
(ii) | Represents an adjustment to eliminate prepaid interest related to NRF’s term borrowing, which was paid off and terminated in connection with the Mergers (refer to footnote 1). |
(iii) | Represents an adjustment to eliminate receivables from NSAM and NRF related to integration expenses paid by Colony (refer to footnote 7). |
(6) | The following table presents a summary of merger-related adjustments related to credit facilities and term borrowings (in thousands): |
Adjustments related to credit facilities and term borrowings: | NSAM | NRF | Total | |||||||||
Principal pay down of corporate borrowings (refer to footnote 1)(i) | $ | (496,250 | ) | $ | (425,000 | ) | $ | (921,250 | ) | |||
Elimination of deferred financing costs | 27,825 | 3,416 | 31,241 | |||||||||
Total | $ | (468,425 | ) | $ | (421,584 | ) | $ | (890,009 | ) | |||
___________________________________________
(i) | Proceeds from NRF Sales Initiatives were used to pay down the NSAM and NRF corporate borrowings. |
(7) | The following table presents a summary of merger-related adjustments related to accounts payable and other liabilities (in thousands): |
Adjustments related to accounts payable and other liabilities: | Colony | NSAM | NRF | Total | ||||||||||||
Merger-related transaction and other costs(i) | $ | 30,600 | $ | 32,417 | $ | 32,210 | $ | 95,227 | ||||||||
NSAM executive compensation accrual(ii) | — | (23,621 | ) | (2,139 | ) | (25,760 | ) | |||||||||
Interest payable related to NSAM’s corporate borrowing(iii) | — | (4,135 | ) | — | (4,135 | ) | ||||||||||
Accounts payable due to Colony(iv) | — | (1,324 | ) | (1,324 | ) | (2,648 | ) | |||||||||
Total | $ | 30,600 | $ | 3,337 | $ | 28,747 | $ | 62,684 | ||||||||
___________________________________________
(i) | Represents non-recurring transaction and other costs incurred in connection with the Mergers, consisting primarily of advisory, legal, accounting, tax and other professional services, which are factually supportable as such amounts are based on invoices for costs incurred to date and estimates from third-parties for additional costs expected to be incurred until the closing of the Mergers. Such costs are reflected as a reduction to retained earnings and not included in the unaudited pro forma condensed consolidated statement of operations (refer to footnote 11). |
(ii) | Represents an adjustment to eliminate compensation payable related to arrangements entered into with the NSAM executive officers in connection with the Mergers (refer to footnote 11). |
(iii) | Represents an adjustment to eliminate interest payable related to NSAM’s corporate borrowings (refer to footnote 1). |
(iv) | Represents an adjustment to eliminate accounts payable due to Colony related to integration expenses paid by Colony (refer to footnote 5). |
8
(8) | Reflects the reclassification of performance common stock to common stock upon accelerated vesting or forfeiture in connection with the Mergers. |
(9) | The following table presents a summary of the merger-related adjustment to common stock par value (in thousands, except for exchange ratios and par value per share): |
Adjustments to common stock at par: | Colony | NSAM | NRF | Pro Forma Colony NorthStar | |||||||||
Outstanding shares of common stock as of December 31, 2016(i) | 114,035 | 188,430 | 180,620 | ||||||||||
Equity awards issued to Colony employees prior to Closing Date | 957 | — | — | ||||||||||
Equity awards vested upon the Mergers and converted into Colony NorthStar common stock, net of shares withheld for tax(ii) | — | 2,309 | 671 | ||||||||||
NRF long term incentive plan (“LTIP”) units converted to common stock(iii) | — | — | 1,855 | ||||||||||
Outstanding shares of common stock as of January 10, 2017 | 114,992 | 190,739 | 183,146 | ||||||||||
Exchange ratio | 1.4663 | 1.0000 | 1.0996 | ||||||||||
Shares of Colony NorthStar common stock—pro forma basis | 168,613 | 190,739 | 201,387 | 560,739 | |||||||||
Shares of NRF common stock owned by NSAM(iv) | NA | NA | (2,984 | ) | (2,984 | ) | |||||||
168,613 | 190,739 | 198,403 | 557,755 | ||||||||||
Restricted stock issued in connection with the Mergers (Note 6) | 4,670 | ||||||||||||
Shares of Colony NorthStar common stock—pro forma basis (as adjusted)(v) | 562,425 | ||||||||||||
Par value per share | $ | 0.01 | |||||||||||
Common stock at par of Colony NorthStar—pro forma basis | $ | 5,624 | |||||||||||
Common stock at par as of December 31, 2016 | (4,830 | ) | |||||||||||
Pro forma adjustment to common stock at par | $ | 794 | |||||||||||
___________________________________________
(i) | Includes restricted common stock issued as equity-based awards. |
(ii) | Represents 9.1 million equity-based shares of NSAM that converted to Colony NorthStar class A common stock prior to and upon completion of the Mergers, net of 2.7 million shares forfeited by NSAM executives and 4.1 million shares retired upon vesting for NSAM executive and employee tax withholding. Represents 2.5 million equity-based shares of NRF common stock that converted to Colony NorthStar class A common stock prior to and upon completion of the Mergers, net of 0.6 million shares forfeited by NSAM executives and 1.2 million shares retired upon vesting for NSAM executive and employee tax withholding. Shares withheld for taxes include amounts related to restricted common stock included in outstanding common stock. |
(iii) | In connection with the Mergers, NRF LP merged into NRF resulting in the conversion to NRF common stock of existing LTIP units in NRF LP. |
(iv) | Represents the cancellation of 2.7 million shares of NRF common stock, after giving effect to the exchange ratio, that were owned by NSAM (refer to footnote 2). |
(v) | Includes shares of both class A and class B pro forma Colony NorthStar common stock. |
(10) | The following table presents a summary of the merger-related adjustments to additional paid-in capital as of December 31, 2016 (in thousands): |
Adjustments to additional paid-in capital: | Colony | NSAM | NRF | Total | ||||||||||||
Adjustment to common stock par value (refer to footnote 9) | $ | — | $ | — | $ | — | $ | (794 | ) | |||||||
Elimination of performance common stock | — | 52 | — | 52 | ||||||||||||
Elimination of historical accumulated deficit | — | (68,541 | ) | (2,901,966 | ) | (2,970,507 | ) | |||||||||
Elimination of historical accumulated other comprehensive loss | — | (280 | ) | (77,523 | ) | (77,803 | ) | |||||||||
Adjustment to noncontrolling interests in operating partnership | — | (79,477 | ) | (iv) | 31,585 | (i) | (47,892 | ) | ||||||||
Elimination of carrying value of NRF common stock owned by NSAM | — | — | (41,113 | ) | (ii) | (41,113 | ) | |||||||||
Acceleration of equity-based awards vested upon the Mergers(iii) | 208 | — | — | 208 | ||||||||||||
Elimination of retained earnings from NRF Sale Initiatives | — | — | (19,141 | ) | (19,141 | ) | ||||||||||
Total merger-related adjustments to additional paid-in capital | $ | (3,156,990 | ) | |||||||||||||
___________________________________________
(i) | In connection with the Mergers, NRF LP merged into NRF (refer to footnote 9). |
(ii) | Represents the carrying value of 2.7 million shares of NRF common stock owned by NSAM (refer to footnote 9). |
(iii) | Represents the acceleration of equity-based compensation on outstanding Colony equity awards that vested in accordance with their terms upon consummation of the Mergers. NSAM and NRF equity awards that vested in connection with the Mergers are not included as adjustments as such events occur prior to the Mergers. |
9
(iv) | Represents the reallocation of pro forma equity in Colony NorthStar OP between controlling and noncontrolling interests based upon OP units outstanding post-merger (in thousands, except for exchange ratio): |
Pro forma noncontrolling interests in Colony NorthStar OP: (i) | Colony | NSAM | Total Colony NorthStar(ii) | ||||||
Pro forma OP and LTIP units owned by noncontrolling interests | 20,662 | 4,062 | |||||||
Exchange ratio | 1.4663 | 1.0000 | |||||||
Noncontrolling interests’ ownership of Colony NorthStar OP and LTIP units—pro forma basis | 30,296 | 4,062 | 34,358 | ||||||
Shares of Colony NorthStar common stock—pro forma basis | 562,425 | ||||||||
Total Colony NorthStar OP and LTIP units outstanding—pro forma basis | 596,783 | ||||||||
Noncontrolling interests’ share of Colony NorthStar OP—pro forma basis | 5.8 | % | |||||||
___________________________________________
(i)In connection with the Mergers, NRF LP merged into NRF (refer to footnote 9).
(ii) | Excludes 774,900 RSU awards to a non-employee that do not vest upon consummation of the Mergers, after giving effect to the NRF exchange ratio. Refer to Note 6. |
(11) | The following table presents a summary of merger-related adjustments to retained earnings (accumulated deficit) as of December 31, 2016 (in thousands): |
Adjustments to accumulated deficit: | Colony | NSAM | NRF | Total | ||||||||||||
Elimination of accumulated deficit | $ | — | $ | 68,541 | $ | 2,901,966 | $ | 2,970,507 | ||||||||
Merger-related transaction costs(i) | (30,600 | ) | (32,417 | ) | (32,210 | ) | (95,227 | ) | ||||||||
NSAM executive compensation accrual(ii) | — | 23,621 | 2,139 | 25,760 | ||||||||||||
Acceleration of equity-based awards vested upon the Mergers(iii) | (208 | ) | — | — | (208 | ) | ||||||||||
Deferred financing costs associated with corporate credit facilities(iv) | — | (27,825 | ) | (3,931 | ) | (31,756 | ) | |||||||||
Elimination of retained earnings from NRF Sale Initiatives | — | — | 19,141 | 19,141 | ||||||||||||
Total merger-related adjustments to retained earnings (accumulated deficit) | $ | 2,888,217 | ||||||||||||||
___________________________________________
(i) | Represents non-recurring transaction costs directly attributable to the Mergers, which is reflected as a pro forma adjustment to accounts payable and other liabilities (refer to footnote 7). |
(ii) | Represents an adjustment to eliminate compensation payable related to arrangements entered into with the NSAM executive officers in connection with the Mergers. |
(iii) | Represents the acceleration of equity-based compensation on outstanding Colony equity awards that vested in accordance with their terms upon consummation of the Mergers. NSAM and NRF equity awards that vested in connection with the Mergers are not included as an adjustment as such event occurs prior to the Mergers. Refer to footnote 10. |
(iv) | Represents an adjustment to eliminate deferred financing costs of $0.5 million related to NRF’s corporate revolving credit facility and $31.3 million related to NSAM and NRF’s respective term borrowings. The corporate borrowings of NSAM and NRF were paid off and terminated in connection with the Mergers. Refer to footnotes 5 and 6. |
C. | Fair Value Adjustments |
The fair value adjustments reflected in the unaudited pro forma condensed consolidated balance sheet represent the differences between fair value amounts based on a preliminary purchase price allocation of the assets acquired and liabilities assumed of NSAM and NRF and the corresponding historical balances of NSAM and NRF, as adjusted (in thousands):
NSAM | NRF | Fair Value Adjustment | |||||||||||||||||||
Fair Value(1) | Adjusted Historical | Fair Value(1)(2) | Adjusted Historical(3) | ||||||||||||||||||
Assets | |||||||||||||||||||||
Cash and cash equivalents | $ | 131,666 | $ | 131,666 | $ | 2,123,973 | $ | 2,123,973 | $ | — | |||||||||||
Restricted cash | 22,477 | 22,477 | 165,114 | 165,114 | — | ||||||||||||||||
Operating real estate, net | — | — | 9,151,464 | 7,397,231 | 1,754,233 | ||||||||||||||||
Real estate debt investments, net | — | — | 300,272 | 296,544 | 3,728 | ||||||||||||||||
Real estate debt investments, held for sale | — | — | 34,000 | 34,000 | — | ||||||||||||||||
Investments in private equity funds | — | — | 416,919 | 416,919 | — | ||||||||||||||||
Investments in unconsolidated ventures | 95,170 | 55,836 | 195,635 | 167,778 | 67,191 | (5) | |||||||||||||||
Real estate securities, available for sale | — | — | 445,363 | 445,363 | — | ||||||||||||||||
Securities, at fair value | 3,065 | 3,097 | (16) | — | — | (32 | ) | ||||||||||||||
Due from affiliates | 34,586 | 53,307 | 1,058 | 1,058 | (18,721 | ) | |||||||||||||||
Goodwill | 871,108 | 243,328 | 539,707 | 43,432 | 1,124,055 | (6) | |||||||||||||||
Intangible assets, net | 2,590,120 | 201,631 | 584,052 | 289,568 | 2,682,973 | (4) | |||||||||||||||
Assets of properties held for sale | — | — | 34,000 | (378,119 | ) | 412,119 | (3) | ||||||||||||||
Other assets | 134,129 | 98,172 | 123,145 | 184,140 | (25,038 | ) | (7)(10) | ||||||||||||||
Total assets | $ | 3,882,321 | $ | 809,514 | $ | 14,114,702 | $ | 11,187,001 | $ | 6,000,508 | |||||||||||
Liabilities | |||||||||||||||||||||
Mortgage and other notes payable | $ | — | $ | — | $ | 6,189,185 | $ | 6,260,908 | $ | (71,723 | ) | (8) | |||||||||
Credit facilities and term borrowings | 468,425 | 468,425 | 421,584 | 421,584 | — | (9) | |||||||||||||||
Convertible senior notes | — | — | 32,042 | 27,410 | 4,632 | (8) | |||||||||||||||
Securitization bonds payable | — | — | 256,544 | 256,544 | — | ||||||||||||||||
Junior subordinated notes | — | — | 194,980 | 194,980 | — | ||||||||||||||||
Accounts payable and other liabilities | 344,411 | 122,012 | 260,211 | 183,974 | 298,636 | (10) | |||||||||||||||
Due to related parties | — | — | 874 | 874 | — | ||||||||||||||||
Intangible liabilities, net | — | — | 2,049,880 | 110,661 | 1,939,219 | (4) | |||||||||||||||
Dividends payable | 228,000 | — | — | — | 228,000 | (11) | |||||||||||||||
Liabilities of properties held for sale | — | — | 14,320 | 10,379 | 3,941 | (3) | |||||||||||||||
Derivative liabilities, at fair value | — | — | 147,405 | 123,472 | 23,933 | ||||||||||||||||
Total liabilities | 1,040,836 | 590,437 | 9,567,025 | 7,590,786 | 2,426,638 | ||||||||||||||||
Commitments and contingencies | |||||||||||||||||||||
Redeemable noncontrolling interests | 78,843 | 74,525 | — | — | 4,318 | (14) | |||||||||||||||
Equity | |||||||||||||||||||||
Performance common stock | 52 | 52 | — | — | — | ||||||||||||||||
Preferred stock | — | — | 997,461 | 939,118 | 58,343 | (12) | |||||||||||||||
Common stock | 1,884 | 1,884 | 1,806 | 1,806 | — | ||||||||||||||||
Additional paid-in capital | 2,827,974 | 209,884 | (16) | 3,021,305 | 2,205,838 | 3,433,557 | (13) | ||||||||||||||
Accumulated other comprehensive loss | (280 | ) | (280 | ) | (77,523 | ) | (77,523 | ) | — | ||||||||||||
Retained earnings (accumulated deficit) | (68,541 | ) | (68,541 | ) | (19,141 | ) | (19,141 | ) | — | ||||||||||||
Total stockholders’ equity | 2,761,089 | 142,999 | 3,923,908 | 3,050,098 | 3,491,900 | ||||||||||||||||
Noncontrolling interests—investments | — | — | 592,184 | 514,532 | 77,652 | (14) | |||||||||||||||
Noncontrolling interests—operating partnership | 1,553 | 1,553 | 31,585 | 31,585 | — | (15) | |||||||||||||||
Total equity | 2,762,642 | 144,552 | 4,547,677 | 3,596,215 | 3,569,552 | ||||||||||||||||
Total liabilities, redeemable noncontrolling interests and equity | $ | 3,882,321 | $ | 809,514 | $ | 14,114,702 | $ | 11,187,001 | $ | 6,000,508 | |||||||||||
_________________________
(1) | Fair value reflected in the unaudited pro forma condensed consolidated balance sheet was estimated as follows: |
(i) | Real estate and related intangibles—based on a discounted cash flow analysis or direct capitalization analysis, and for real estate held for sale, contracted sale price or a sales comparison approach, adjusted for estimated selling costs. The fair value is allocated to |
tangible assets such as land, building, tenant and land improvements and identified intangibles, such as above- and below-market leases, above- and below market ground lease obligations, in-place lease value and goodwill.
(ii) | Real estate debt investments—determined by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment or based on discounted cash flow projections of principal and interest expected to be collected, which include consideration of borrower or sponsor credit, as well as operating results of the underlying collateral. For certain real estate debt investments considered to be impaired, their carrying value approximates fair value. |
(iii) | Private equity funds and investments in unconsolidated ventures—based on the timing and amount of expected future cash flow for income and realization events for underlying assets. |
(iv) | Real estate securities—based on quotations from brokers or financial institutions that act as underwriters of the securities, third-party pricing service or discounted cash flow depending on the type of securities. |
(v) | Management agreements and related intangible assets—includes NSAM’s management contracts, customer relationships and trade name. The fair value of management contracts and customer relationships represent the discounted excess earnings attributable to the future management fee income from in-place management contracts and to the potential fee income from repeat customers through future sponsored funds, respectively. The fair value of trade name is estimated based on a discounted royalty rate. |
(vi) | Mortgage and other notes payable—estimated by discounting expected future cash outlays at interest rates currently available for instruments with similar terms and remaining maturities. |
(vii) | Convertible senior notes—based on quoted market prices or recent transactions. |
(viii) | Securitization bonds payable and junior subordinated notes—based on quotations from brokers or financial institutions that act as underwriters of the securitized bonds or subordinated notes. |
(2) | Fair value excludes assets and liabilities associated with the NRF Sales Initiatives (refer to footnote 3). |
(3) | The following table presents the assets and liabilities of NRF as of December 31, 2016, adjusted to reflect the impact of the NRF Sales Initiatives (in thousands): |
Historical | NRF Sales Initiatives(i) | Adjusted Historical | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 1,104,950 | $ | 1,019,023 | $ | 2,123,973 | ||||||
Restricted cash | 166,394 | (1,280 | ) | 165,114 | ||||||||
Operating real estate, net | 7,397,231 | — | 7,397,231 | |||||||||
Real estate debt investments, net | 296,544 | — | 296,544 | |||||||||
Real estate debt investments, held for sale | 34,000 | — | 34,000 | |||||||||
Investments in private equity funds | 416,919 | — | 416,919 | |||||||||
Investments in unconsolidated ventures | 167,778 | — | 167,778 | |||||||||
Real estate securities, available for sale | 445,363 | — | 445,363 | |||||||||
Due from affiliates | 1,058 | — | 1,058 | |||||||||
Goodwill | 43,432 | — | 43,432 | |||||||||
Intangible assets, net | 289,568 | — | 289,568 | |||||||||
Assets of properties held for sale(ii) | 1,668,305 | (2,046,424 | ) | (378,119 | ) | |||||||
Other assets | 185,347 | (1,207 | ) | 184,140 | ||||||||
Total assets | $ | 12,216,889 | $ | (1,029,888 | ) | $ | 11,187,001 | |||||
Liabilities | ||||||||||||
Mortgage and other notes payable | $ | 6,290,200 | $ | (29,292 | ) | $ | 6,260,908 | |||||
Credit facilities and term borrowings | 421,584 | — | 421,584 | |||||||||
Convertible senior notes | 27,410 | — | 27,410 | |||||||||
Securitization bonds payable | 256,544 | — | 256,544 | |||||||||
Junior subordinated notes | 194,980 | — | 194,980 | |||||||||
Accounts payable and other liabilities | 166,054 | 17,920 | 183,974 | |||||||||
Due to related parties | 874 | — | 874 | |||||||||
Intangible liabilities, net | 110,661 | — | 110,661 | |||||||||
Liabilities of properties held for sale | 1,291,275 | (1,280,896 | ) | 10,379 | ||||||||
Derivative liabilities, at fair value | 123,472 | — | 123,472 | |||||||||
Total liabilities | $ | 8,883,054 | $ | (1,292,268 | ) | $ | 7,590,786 | |||||
_______________________
(i) | Refer to Note 4.A, NRF Sales Initiatives. |
(ii) | Assets of properties held for sale were carried at the lower of cost or fair value in NRF’s historical balance at December 31, 2016, while such assets are reflected at fair value when adjusting NRF sales initiatives from the historical balance. |
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(4) | The following table presents a summary of the major classes of intangible assets acquired and intangible liabilities assumed as part of the Mergers (in thousands): |
NSAM | NRF | Fair Value Adjustment | ||||||||||||||||||
Intangible assets | Fair Value | Historical | Fair Value | Historical | ||||||||||||||||
Management agreements and related intangibles(i) | $ | 2,590,120 | $ | 201,631 | $ | — | $ | — | $ | 2,388,489 | ||||||||||
In-place lease values | — | — | 132,339 | 99,728 | 32,611 | |||||||||||||||
Above-market lease values | — | — | 377,673 | 153,146 | 224,527 | |||||||||||||||
Below-market ground lease obligations | — | — | 15,412 | — | 15,412 | |||||||||||||||
Other real estate intangible assets | — | — | 58,628 | 36,694 | 21,934 | |||||||||||||||
Total | $ | 2,590,120 | $ | 201,631 | $ | 584,052 | $ | 289,568 | $ | 2,682,973 | ||||||||||
Intangible liabilities | ||||||||||||||||||||
NRF management agreement(i)(a) | $ | — | $ | — | $ | 1,930,000 | $ | — | $ | 1,930,000 | ||||||||||
Below-market lease values | — | — | 103,322 | 108,534 | (5,212 | ) | ||||||||||||||
Other real estate intangible liabilities | — | — | 16,558 | 2,127 | 14,431 | |||||||||||||||
Total | $ | — | $ | — | $ | 2,049,880 | $ | 110,661 | $ | 1,939,219 | ||||||||||
__________________
(i) | NSAM’s management agreements and related intangibles are summarized as follows (in thousands): |
NSAM | ||||||||
Fair Value | Historical | |||||||
NSAM | ||||||||
Management agreements with NorthStar Retail Companies and NorthStar Europe(a) | $ | 366,400 | $ | — | ||||
Trade name and broker dealer | 65,150 | — | ||||||
NRF management agreement(a) | 1,930,000 | — | ||||||
Townsend | ||||||||
Customer relationships | 209,010 | 179,091 | ||||||
Performance fees | 2,290 | 5,131 | ||||||
Trade name | 17,030 | 17,276 | ||||||
Proprietary technology | 240 | 133 | ||||||
Total | $ | 2,590,120 | $ | 201,631 | ||||
___________________
(a) | The preliminary fair values were estimated using a discounted cash flow analysis, comparing the existing NSAM management agreements with a range of observable inputs for similar contracts including discount rates ranging between 8.0% and 10.0%. The NRF management agreement represents the off market fair value of such agreement. The NRF management agreement ceased to exist upon completion of the Mergers. The NorthStar Europe management agreement has an indefinite useful life. For definitions of Retail Companies and NorthStar Europe, refer to the Form 10-K. |
(5) | NRF has historically elected the fair value option for its investments in private equity funds, certain investments in unconsolidated ventures, real estate securities, securitization bonds payable and junior subordinated notes, where carrying value represents fair value. The adjustment reflects the fair value of certain investments in unconsolidated ventures of NRF and of NSAM carried at historical cost. |
(6) | Represents elimination of historical goodwill of NSAM and certain NRF properties and an adjustment for goodwill based on the preliminary purchase price allocation. |
(7) | Straight-lining of rent pursuant to the underlying leases associated with the real estate acquired in connection with the Mergers will commence at the effective date of the Mergers; therefore the amount of unbilled rent receivable on the balance sheet as of December 31, 2016 has been eliminated. |
(8) | Represents fair value adjustments, including elimination of deferred financing costs. |
(9) | The carrying value of NSAM and NRF credit facilities and term borrowings approximate fair value. |
(10) | Includes the estimated deferred tax effect of pro forma adjustments using an estimated 40% effective income tax rate. |
(11) | Represents special dividend of $228.0 million payable to NSAM stockholders immediately prior to the Mergers which is an assumed liability of Colony NorthStar. |
(12) | Represents an adjustment to reflect the fair value of NRF preferred stock which were converted into Colony NorthStar preferred stock upon consummation of the Mergers and form part of merger consideration, as discussed in Note 3, Merger Consideration. |
(13) | Adjustment to additional paid-in capital represents the remaining net asset value of NSAM and NRF after adjustments to retained earnings (accumulated deficit) and noncontrolling interests. |
(14) | Fair value of noncontrolling interests are derived as their proportionate share of the fair value of net assets attributable to them, with such fair value determined on the same basis as described above. |
(15) | Refer to adjustments to noncontrolling interests in operating partnership in Note 4.B. Merger Adjustments, footnote 10. |
(16) | NSAM’s historical balance reflects elimination of the carrying value of NSAM’s ownership of 2.7 million shares of NRF common stock. Refer to Note 4.B. Merger Adjustments, footnote 2. |
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Note 5. Adjustments to the Unaudited Pro Forma Condensed Consolidated Statement of Operations
D. | NRF Sales Initiatives |
The following table presents pro forma adjustments for the year ended December 31, 2016 related to NRF Sales Initiatives. Such adjustments eliminate any activity related to assets sold subsequent to December 31, 2016 or held for sale (in thousands):
Year Ended December 31, 2016 | ||||||||||||||||||||||||||||||||||||
Manufactured Housing | Multifamily | Healthcare Portfolio(1) | Industrial Portfolio | Private Equity Portfolio | CRE Debt Investments | CRE Securities | Net Lease | Total NRF Sales Initiatives | ||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||
Rental and tenant reimbursement income | $ | (197,067 | ) | $ | (22,492 | ) | $ | (78,746 | ) | $ | (27,228 | ) | $ | — | $ | — | $ | — | $ | (2,827 | ) | $ | (328,360 | ) | ||||||||||||
Interest income | (5,924 | ) | — | (5 | ) | (3 | ) | — | (8,405 | ) | (772 | ) | (15,109 | ) | ||||||||||||||||||||||
Other income | (5,290 | ) | (1,349 | ) | (1,016 | ) | — | — | — | — | (7,655 | ) | ||||||||||||||||||||||||
Total revenues | (208,281 | ) | (23,841 | ) | (79,767 | ) | (27,231 | ) | — | (8,405 | ) | (772 | ) | (2,827 | ) | (351,124 | ) | |||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||
Interest expense | (55,698 | ) | (5,791 | ) | (28,422 | ) | (4,897 | ) | — | (393 | ) | — | (1,136 | ) | (96,337 | ) | ||||||||||||||||||||
Property operating expenses | (77,827 | ) | (10,613 | ) | (23,735 | ) | (3,849 | ) | — | — | — | (243 | ) | (116,267 | ) | |||||||||||||||||||||
Other expense—investment and servicing expenses | (458 | ) | (149 | ) | (95 | ) | (785 | ) | — | (42 | ) | — | (14 | ) | (1,543 | ) | ||||||||||||||||||||
Transaction costs | (205 | ) | — | — | — | — | — | — | — | (205 | ) | |||||||||||||||||||||||||
Provision for loan losses | (322 | ) | — | — | — | — | (2,806 | ) | — | — | (3,128 | ) | ||||||||||||||||||||||||
Depreciation and amortization | — | — | (27,889 | ) | (5,217 | ) | — | — | — | (633 | ) | (33,739 | ) | |||||||||||||||||||||||
Total expenses | (134,510 | ) | (16,553 | ) | (80,141 | ) | (14,748 | ) | — | (3,241 | ) | — | (2,026 | ) | (251,219 | ) | ||||||||||||||||||||
Other income (loss) | ||||||||||||||||||||||||||||||||||||
Realized gain (loss) on investments and other | 5,056 | (39,907 | ) | (16,696 | ) | (13,235 | ) | 9,889 | 1,302 | 5,614 | — | (47,977 | ) | |||||||||||||||||||||||
Equity in earnings of unconsolidated joint ventures | — | — | — | — | (10,799 | ) | — | — | — | (10,799 | ) | |||||||||||||||||||||||||
Income tax benefit (expense) | 123 | — | (18 | ) | — | 2,870 | (4 | ) | — | — | 2,971 | |||||||||||||||||||||||||
Income (loss) from continuing operations | (68,592 | ) | (47,195 | ) | (16,340 | ) | (25,718 | ) | 1,960 | (3,866 | ) | 4,842 | (801 | ) | (155,710 | ) | ||||||||||||||||||||
Income (loss) attributable to noncontrolling interests—Investments | — | (3,089 | ) | (14,835 | ) | — | — | — | — | (17,924 | ) | |||||||||||||||||||||||||
Net income (loss) from continuing operations attributable to common stockholders | $ | (68,592 | ) | $ | (44,106 | ) | $ | (1,505 | ) | $ | (25,718 | ) | $ | 1,960 | $ | (3,866 | ) | $ | 4,842 | $ | (801 | ) | $ | (137,786 | ) | |||||||||||
___________________________________________
(1) | Includes a portfolio of medical office buildings, a senior housing portfolio, and the healthcare joint venture. |
E. | Merger Adjustments |
As a result of the Mergers, Colony NorthStar expects estimated annualized synergies of $115 million, consisting of $80 million of cash savings and $35 million of equity-based compensation savings. The merger adjustments to the unaudited pro forma condensed consolidated statement of operations exclude integration activities or full savings that may result from realization of such future cost savings from operating efficiencies, revenue or other incremental synergies expected to result from the Mergers other than the executive compensation adjustments noted in footnotes (1)(vi) and (1)(vii) below.
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(1) | The following table presents a summary of pro forma adjustments related to the Mergers (in thousands): |
Year Ended December 31, 2016 | |||||||||||||||
Colony | NSAM | NRF | Total | ||||||||||||
Pro Forma Adjustments to Revenues | |||||||||||||||
Fee income | $ | — | $ | (186,765 | ) | (i) | $ | — | $ | (186,765 | ) | ||||
Other income | |||||||||||||||
Dividend income | $ | — | $ | (4,342 | ) | (ii) | $ | — | $ | (4,342 | ) | ||||
Loan origination fee | — | — | (986 | ) | (iv) | (986 | ) | ||||||||
Reimbursement between NSAM and managed companies | — | 32,847 | (iii) | — | 32,847 | ||||||||||
Total other income | $ | — | $ | 28,505 | $ | (986 | ) | $ | 27,519 | ||||||
Pro Forma Adjustments to Expenses | |||||||||||||||
Management fee | $ | — | $ | — | $ | (186,765 | ) | (i) | $ | (186,765 | ) | ||||
Transaction costs | $ | (19,458 | ) | (v) | $ | (38,366 | ) | (v) | $ | (15,467 | ) | (v) | $ | (73,291 | ) |
Compensation costs | |||||||||||||||
Reimbursement between NSAM and managed companies | $ | — | $ | 26,278 | (iii) | $ | — | $ | 26,278 | ||||||
Cash compensation | — | (33,310 | ) | (vi) | (519 | ) | (vi) | (33,829 | ) | ||||||
Equity-based compensation expense | 742 | (viii) | 78,085 | (vi)(vii) | (15,517 | ) | (vi) | 63,310 | |||||||
Total compensation costs(ix) | $ | 742 | $ | 71,053 | $ | (16,036 | ) | $ | 55,759 | ||||||
Other general and administrative expenses | |||||||||||||||
Loan origination fee | $ | — | $ | (986 | ) | (iv) | $ | — | $ | (986 | ) | ||||
Reimbursement between NSAM and managed companies | — | 6,569 | (iii) | — | 6,569 | ||||||||||
Total other general and administrative expenses | $ | — | $ | 5,583 | $ | — | $ | 5,583 | |||||||
___________________________________________
(i) | Represents elimination of management fee income and expense between NSAM and NRF, respectively. |
(ii) | Represents elimination of dividend income NSAM received from its ownership of NRF common stock. |
(iii) | Represents reclassification of reimbursable expenses incurred on behalf of NSAM’s managed companies (excluding amounts allocated to NRF which do not result in an adjustment). |
(iv) | Represents elimination of loan origination fees from NSAM to NRF. |
(v) | Represents elimination of merger-related transaction costs incurred for the year ended December 31, 2016. |
(vi) | Includes an adjustment to eliminate cash and equity-based compensation related to arrangements entered into by the NSAM executive officers in connection with the Mergers, who agreed to a nominal annual salary of $1 for one year after the Closing Date. |
(vii) | Includes the amortization of $120.0 million of replacement equity awards issued to NSAM executives in connection with the Mergers. The amount was determined using the closing price of Colony class A common stock on the grant date of January 10, 2017, adjusted for the exchange ratio, or $14.68 per share, for the 8.2 million restricted shares and LTIP units issued in connection with the Mergers. See Note 6, Pro Forma Shares Outstanding and Earnings Per Share, for additional information. |
(viii) | Represents an adjustment to recognize incremental equity-based compensation expense on outstanding Colony equity awards that do not vest upon consummation of the Mergers, at their adjusted fair value, remeasured on the Closing Date. |
(ix) | The pro forma compensation expense of $359.9 million for the year ended December 31, 2016 includes $162.7 million of equity-based compensation expense. |
(2) | The following table summarizes adjustments to interest expense (in thousands): |
Year Ended December 31, 2016 | ||||||||||||
Adjustments to interest expense: | NSAM | NRF | Total | |||||||||
Interest expense on corporate borrowings(i) | $ | (21,958 | ) | $ | (21,752 | ) | $ | (43,710 | ) | |||
Amortization of deferred financing costs | (3,956 | ) | (5,491 | ) | (9,447 | ) | ||||||
Total | $ | (25,914 | ) | $ | (27,243 | ) | $ | (53,157 | ) | |||
___________________________________________
(i) NSAM and NRF corporate borrowings were paid off and terminated in connection with the Mergers.
(3) | Represents elimination of historical unrealized losses related to NSAM’s ownership of NRF common stock. |
(4) | Represent adjustments to eliminate equity in earnings from sale of NSAM’s interest in Island Hospitality Management Inc. in connection with the Mergers and to record interest income as it was sold for a note receivable of $28.5 million that matures in January 2027 at a fixed 8% interest rate. |
(5) | Represents the income tax effect of pro forma adjustments related to the Mergers, calculated using an estimated 40% effective income tax rate on assets held in taxable REIT subsidiaries. |
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(6) | The following table summarizes adjustments to noncontrolling interests in the operating partnership (in thousands): |
Adjustments to noncontrolling interests-operating partnership: | Year Ended December 31, 2016 | |||
Allocation to noncontrolling interests-Colony NorthStar operating partnership(i) | $ | (27,660 | ) | |
Elimination of NRF operating partnership(ii) | 2,904 | |||
Total | $ | (24,756 | ) | |
___________________________________________
(i) | Represents an adjustment to allocate the pro forma ownership interest of Colony NorthStar of 5.8%. Refer to Note 4.B, Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet—Merger Adjustments, footnote 10 for additional information. |
(ii) | Represents elimination of the noncontrolling interests in NRF LP. In connection with the Mergers, NRF LP merged with NRF, converting noncontrolling LTIP unit interests into common stock. |
F. | Fair Value Adjustments |
(7) | The following table presents a summary of adjustments related to NRF’s amortization of above and below-market leases based on remaining lease terms ranging from one to 29 years (in thousands): |
Adjustments to amortization of above/below market leases: | Year Ended December 31, 2016 | |||
Remove historical amortization | $ | 6,346 | ||
Amortization based on fair value | 21,015 | |||
Total | $ | 27,361 | ||
(8) | The following table presents a summary of adjustments to interest expense related to the fair value of NRF’s convertible senior notes, securitization bonds payable and mortgage and other notes payable amortized over the respective remaining term of each borrowing (in thousands): |
Adjustments to interest expense: | Year Ended December 31, 2016 | |||
Convertible senior notes | $ | (147 | ) | |
Mortgage and other notes payable | (3,902 | ) | ||
Total | $ | (4,049 | ) | |
(9) | Represents adjustments to remove historical amortization of NRF’s below-market ground lease and straight-line ground rent of $0.5 million for the year ended December 31, 2016 and include $2.5 million of amortization based on fair values. |
(10) | The following table presents a summary of adjustments to depreciation and amortization based on useful lives of operating real estate and lease terms of real estate intangible assets ranging from four to 40 years, as well as useful lives of investment management intangible assets ranging from three to 30 years (in thousands): |
Year Ended December 31, 2016 | ||||||||||||
Adjustments to depreciation and amortization: | NSAM | NRF | Total | |||||||||
Remove historical depreciation and amortization | $ | (10,020 | ) | $ | (304,196 | ) | $ | (314,216 | ) | |||
Depreciation and amortization based on fair value | 41,147 | 332,322 | 373,469 | |||||||||
Total | $ | 31,127 | $ | 28,126 | $ | 59,253 | ||||||
(11) | Represents the share of pro forma adjustments to interest, depreciation and amortization expense attributable to noncontrolling interests in investment entities based upon their respective ownership in each venture, as a result of fair value adjustments to assets and liabilities. |
14
Note 6. Pro Forma Shares Outstanding and Earnings Per Share
Shares, Units and RSUs Outstanding
The following table presents a summary of pro forma shares, OP units, LTIPs and RSUs outstanding at the effective time of the Mergers (in thousands):
Colony | NSAM | NRF | Total Colony NorthStar(5) | |||||||||
Shares of Colony NorthStar common stock—pro forma basis(1) | 168,613 | 190,739 | 198,403 | 557,755 | ||||||||
OP units and LTIP units(2) | 30,296 | 556 | — | 30,852 | ||||||||
RSUs(3) | — | 500 | 275 | 775 | ||||||||
LTIP units issued in connection with the Mergers(4) | 3,506 | |||||||||||
Restricted stock issued in connection with the Mergers(4) | 4,670 | |||||||||||
Total | 597,558 | |||||||||||
___________________________________________
(1) | Refer to Note 4.B, Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet—Merger Adjustments, footnote 9. Includes shares of both class A and class B pro forma Colony NorthStar common stock. |
(2) | Represents OP units and LTIP units outstanding immediately prior to Closing Date. |
(3) | Represents non-employee RSU awards that do not vest upon consummation of the Mergers, after giving effect to the NRF exchange ratio. |
(4) | Represents LTIP units and restricted stock issued as replacement equity awards to NSAM’s executives in connection with the Mergers. The shares and units issued for such awards were based on the volume weighted average price of Colony NorthStar common stock over the first five trading days immediately following the closing of the Mergers, subject to a per share floor of $15.00. Actual shares and units issued were based upon the per share floor of $15.00. See Note 5.E. Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet—Merger Adjustments, footnote (1)(vii). An aggregate 4,669,518 shares of restricted stock and 3,506,387 LTIP units were issued and will vest on the one year anniversary of the Closing Date. |
(5) | Excludes shares that were issued in connection with retention plans subsequent to the Mergers. |
Earnings (Loss) Per Share
The following table presents pro forma basic and diluted earnings (loss) per share after giving effect to the pro forma adjustments to the unaudited consolidated statement of operations (in thousands, except for per share data):
Pro forma earnings per share: | Year Ended December 31, 2016 | |||
Numerator: | ||||
Net loss from continuing operations attributable to common stockholders | $ | (243,809 | ) | |
Net income allocated to participating securities(i) | (11,098 | ) | ||
Net loss from continuing operations allocated to common stockholders—basic and diluted | $ | (254,907 | ) | |
Denominator: | ||||
Weighted average number of shares outstanding—basic and diluted | 549,458 | |||
Earnings (loss) per share: | ||||
Net loss from continuing operations attributable to common stockholders per share—basic and diluted | $ | (0.46 | ) | |
(i) | Represents the total amount of nonforfeitable dividend participation allocated to participating securities, which include unvested restricted stock and LTIPs, using an assumed annualized dividend rate of $1.08 per share. |
15
The following table presents pro forma basic and diluted weighted average shares outstanding for the year ended December 31, 2016 (in thousands, except for exchange ratios):
Weighted average shares | Colony | NSAM | NRF | Pro Forma Colony NorthStar | ||||||||
Historical weighted average shares—basic | 112,235 | 183,327 | 180,590 | |||||||||
NSAM executive officers equity-based awards vested upon the Mergers and converted into common stock, net(i) | — | 2,993 | 837 | |||||||||
NRF LTIP units converted to common stock(ii) | — | — | 1,855 | |||||||||
Shares of NRF common stock owned by NSAM canceled upon the Mergers | — | — | (2,700 | ) | ||||||||
Adjusted basic weighted average shares of common stock prior to the Mergers | 112,235 | 186,320 | 180,582 | |||||||||
Exchange ratio | 1.4663 | 1.0000 | 1.0996 | |||||||||
Pro forma weighted average shares of Colony NorthStar common stock—basic and diluted(iii) | 164,570 | 186,320 | 198,568 | 549,458 | ||||||||
___________________________________________
(i) | Represents an adjustment related to NSAM and NRF executive equity-based awards that vested upon the Mergers and converted into class A common stock, net of forfeitures, estimated shares withheld for tax and adjustments due to timing. The adjustment assumes such awards converted to common stock on January 1, 2016, the beginning of the earliest period presented. The adjustment related to NSAM includes 3.0 million executive equity-based shares (10.6 million shares issued net of 4.0 million shares forfeited and 3.7 million shares retired upon vesting for tax withholding) and 0.1 million shares due to timing. The adjustment related to NRF includes 0.8 million executive equity-based shares (2.9 million issued net of 1.1 million shares forfeited and 1.0 million shares retired upon vesting for tax withholding) and an immaterial amount due to timing. |
(ii) | In connection with the Mergers, NRF LP merged into NRF resulting in existing LTIP units converted into common stock. |
(iii) | Excluded from the calculation of diluted loss per share are the effects of convertible senior notes and RSUs as they would be antidilutive. Also excluded from the calculation are the effects of redemption of OP units and LTIP units outstanding or issued in connection with the Mergers which may be redeemed for Class A common shares currently or upon vesting. Since they are redeemable on a one-for-one basis, they are not dilutive to the calculation of earnings per share. |
16